Market Files: GSIS's index fund

GSIS’s index fund

A planned stock index fund the Government Service Insurance System (GSIS) announced over the weekend could signal a new beginning for the Philippines’ stock market as it could immediately bring added benefits in terms of breadth in investment choices. This fund is long overdue and it could widen the market’s reach and bring heretofore wary investors into the market. The GSIS plan could even start a planned financial-literacy campaign for overseas Filipino workers who still are at a loss for investment instruments that could further their family’s lot. Several government agencies have tried and failed to introduce new offerings in the financial market as a way to induce the rate of savings in the country. There were attempts before by the Securities and Exchange Commission (SEC), for instance, in the early ’90s, to set up an options market as a way to add to the suite of financial products that were available in the market then. Jardine Fleming made the presentation before the SEC at that time, explaining the put-and-call option and a bigger derivatives market. In the early ’80s, the Manila Stock Exchange introduced a dollar trading board but it did not catch fire. It was then meant to woo into the market the dollar inflows, mostly unregistered, and thereby benefit the country’s dollar hoard. Also, it was intended to smoothen the wide disparity between the official peso-dollar rate and the so-called black market for dollars. This also failed and with it the planned increase in savings rate. But the plan of GSIS, as announced by its president and general manager, Winston Garcia, for a stock index fund that would track the Philippine Stock Exchange index could be what the market has been waiting for. The planned index fund, said to be set up with a P15-billion to P20 billion start-up, is seen to interest investors, especially those who do not have the time to look at each individual stock. This solves the government’s problem on educating the OFWs, whose remittances account for much of the strength of the peso and the uptick in the local economy. As it is, the bulk of the OFWs’ remittances go toward consumption expenditures that do not have as much economic impact as the investment-driven growth that could accrue from the increase in savings. Thus, the GSIS stock index fund brings with it a different investment perspective. Any OFW could purchase a participating unit in the GSIS stock index fund and benefit from the surge in the Philippine market. Investment savvy, it is said, could add to the number of entrepreneurs who create jobs and chip in to the government’s revenue take. Mr. Garcia’s bold move can be considered trailblazing. It also provides the pension fund an opportunity to lock in its gains from its stock market investments following the sale of its stake in San Miguel Corp., Equitable Bank and other listed issues. The GSIS earned P9.7 billion from its initial sale of its holdings and this is expected to hit P15 billion when the year ends. That effectively stretches the actuarial life of the pension fund from just 33 years to 100 years, according to news reports. This means continued benefits for pensioners. The plan sets a new benchmark for GSIS as it moves from being a passive investor to that of a market mover. According to Mr. Garcia, the pension fund’s “strategy since December has been to cash in [on our investments] by disposing of our stocks.” Now, that stock index fund sets a precedent not only for the pension fund but for the stock market as well. When it pushes through, the OFWs and their families will have a new financial instrument to dabble in outside of the certificates of time deposits that now pays under 3 percent. Although late in the game for the local stock market—as all over the world the new trend is the so-called exchange-traded fund—the GSIS plan, when it pushes through, would establish Mr. Garcia as a market visionary and bring in a fresh impetus for a market whose investors failed to appreciate the dollar trading board in the ’80s and the put-or-call option in the ’90s. Clearly, Mr. Garcia would be able to bring the Philippine Stock Exchange to the 21st century.   E-mail:hugagni@yahoo.com

http://www.businessmirror.com.ph/0420&212007/opinion04.html